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Treasury Secretary Janet Yellen made headlines this week with an op-ed suggesting government checks would dry up if Congress doesn’t raise the debt ceiling.
“Nearly 50 million seniors could stop receiving Social Security checks for a while,” Yellen wrote.
The House of Representatives has passed a bill to temporarily finance the government and suspend the debt limit. However, that legislation could fail in the Senate. If lawmakers can’t come to an agreement, the government would shut down on October 1.
Social Security beneficiaries can breathe a sigh of relief knowing the program’s funds will still be there to pay their checks regardless of what happens with the debt ceiling negotiations, according to Nancy Altman, president of Social Security Works, an advocacy group. that focuses on expanding benefits.
However, it’s possible that a government shutdown could slow the speed at which that money reaches people.
Social security funds are segregated
Social Security is “sui generis,” a legal term, meaning it stands on its own, Altman said.
“My reading of the law is that Social Security will not be affected and should not be affected,” she said.
Social Security, which was established in 1935, has never missed a benefit. A major reason why that won’t change now is the fact that it’s a retirement plan, with a pension fund separate from the government’s general operating fund, Altman said.
“That really sets it apart and makes it safer,” she said.
According to the Social Security Administration, the assets reserves of the combined trust funds used to pay pensions and disability benefits were $2.9 trillion at the end of 2020.
At the same time, 175 million workers contributed payroll taxes to social security. Employees pay 6.2% of their wages, which are matched by employers, up to $142,800 in income as of 2021. Self-employed people pay 12.4%.
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Even if the debt ceiling isn’t raised, money from payroll taxes would still continue to flow to the government, Altman said.
Those contributions go into the program’s trust funds and are used to pay benefits.
The combined Social Security Trust Funds for Retirement and Disability can continue to pay the full benefits through 2034, according to the Social Security Administrators’ recently released report for 2021. At that point, 78% of the promised benefits will be paid.
“If the debt ceiling isn’t raised in the next decade, which no one thinks will happen, there won’t be a problem,” Altman said.
How Check Delays Can Occur
Not everyone agrees on what the consequences could be for social security.
The National Committee to Preserve Social Security and Medicare recently warned that the review of benefits could be delayed for weeks or even longer if Congress does not raise or suspend the debt limit.
Maria Freese, senior policy advisor with the committee, said there’s no clear yes or no answer as to whether the debt ceiling will affect Social Security funds and ability to pay benefits.
That uncertainty is due to the fact that there is now more money going out in payments than coming in through payroll taxes, due to the size of the baby boom population. To accommodate this, the program raises money from its trust funds, including government bonds used to pay distributions.
That situation could lead to Social Security becoming entangled with the government clashing with its lending authority, which could delay benefits, she said.
“We are in an unusual situation,” Freese said. “That’s why I think people don’t know exactly what the impact will be. We’ve never experienced this.”
The last time this came close was in 1996, she said. At the time, Congress passed a bill temporarily suspending Social Security payments from the debt limit.
“The beneficiaries didn’t even notice it was a potential problem because it was being solved before it happened,” Freese said.
If Congress cannot come to an agreement in time to avoid a government shutdown, there is a possibility that the distribution of the money will be delayed for another reason: lack of government personnel.
As long as Social Security workers are considered essential government workers who remain in work, benefits will continue to be monitored, Altman said.
During the 2018 shutdown, Social Security continued to issue checks.
This is not the first time that social security has been debated and the debt ceiling has been raised. In 2011, then-President Barack Obama said Social Security benefits would stop during a shutdown. At the time, however, the Social Security Administration said the checks would still go out, although the processing of benefits claims could be delayed.